How can foreign butter (and veges) be cheaper than New Zealand-made?

Source: Radio New Zealand

How can food products that travel into New Zealand from other countries end up being cheaper than those produced locally?

It’s a question some shoppers have been asking because US butter Burtfield’s & Co is being sold at Pak’n Save supermarkets for $6.99 a block, compared to $8.39 for the Pam’s product.

But it’s not the only imported product that is available more cheaply than locally produced options.

The cheapest frozen spinach this week, for example, was packed in Belgium from local and imported spinach. Frozen baby carrots were also imported.

Simplicity chief economist Shamubeel Eaqub said imported butter had been cheaper than export prices for the past two years.

“The main thing is the US has a record dairy herd. They’ve had some problems in terms of exporting to China because of the trade wars, they have a bit of a glut locally. It’s not normal for us to have import prices that are less than export prices.”

But he said the amount of butter being imported was “tiny”.

“Four percent of our consumption in the last 12 months, so a really small amount. It comes with all the issues of logistics, of transporting a bulk commodity around the world.”

‘… some things we don’t have a competitive advantage in’

Westpac chief economist Kelly Eckhold said people often thought of transport as being the main factor in the cost of a food product but it was not always. Things like the cost of energy could affect the price of products that were energy-intensive to make, like fruit juice, he said.

The cheapest one-litre bottle of fruit juice at Woolworths on Tuesday was a Keri juice product made from imported ingredients.

He said about a third of fruit and vegetables were imported. “That reflects the fact that fruit and vegetable supply is seasonal.”

ANZ agricultural economist Matt Dilly said there had been an increase in frozen vegetable imports that was creating competition for the local growers.

“New Zealand doesn’t really have the cost-of-labour advantage or the cost-of-energy advantage. There’s also a lot of tropical fruits and whatnot that we don’t do a very good job of growing ourselves.

“That’s the counterpoint to all the great agricultural exports we have – some things we don’t have a competitive advantage in and we do import them.”

Dilly said the US butter being cheaper would be a short-lived phenomenon.

“It’s pretty unusual right now, where butter prices in the US are at a significant discount to butter prices in New Zealand and Europe. All those things do have a tendency to even out over time.

“While it seems unusual on its face, it is something that can be good for consumers to give them that choice of a lower-priced product, especially when there’s cost of living concerns for a lot of New Zealanders at this point in time.”

Price of agricultural land a factor

Otago University senior lecturer Robert Hamlin said food had become progressively more expensive over the past 30 or 40 years.

“And the primary driver of that has been the building up within this country of the value of agricultural land. Now, the trouble with that is if you end up paying 10 times as much for your land as you used to 30 years ago, it puts the land under pressure. It obviously puts the farm operation under pressure because that’s not actually doing anything to help you produce the product. It’s simply making it more expensive.”

He said while New Zealanders were often told that the price they had to pay was influenced by global price of food, in most places the majority of food was produced and consumed within the region.

“So although we describe Fonterra as a titan of the international dairy trade, which it is, the fact is that the international dairy trade is a very small pond and Fonterra is a big fish in that pond, but it is a very small fish in global terms.

“And this means that you’ve got the majority of food being bought and sold in individual jurisdictions, you’ve got a small percentage of food swilling around internationally.

“New Zealand is really rather unusual in that it has such a very large proportion of its agricultural production is going into this international market for food, which is highly volatile because you’ve got people coming into the market to sell food that they’ve got too much of and then coming into the market to buy food because they haven’t got enough and that food, that means the international price gyrates around more or less continuously.

“But what it boils down to is that we are a high cost producer and we are a higher cost producer than an awful lot of the major producers around the world and therefore you will find out from time to time that food that is produced in this country can be accessed for a considerably lower price overseas than it can be accessed here. And that’s pretty much what’s happened here.”

He said it potentially made New Zealanders vulnerable to the moves of other countries.

“The supply and demand for food across the world is very tight. The amount produced is very close to the amount demanded and this means that it would only take a fairly minor problem within other people’s domestic food market for them to generate a demand in the international market that would make the food in that international market unaffordable for a country that was paying that for all of their food.

“So if we take for example the People’s Republic of China and let’s say that they have a problem with their agricultural production, they could then decide, well we’re going to pay $60 a kilo for milk solids to acquire that small amount of our domestic demand that we need from overseas.

“That will increase the price overall of milk products in China by a relatively small amount, but it would put the price in New Zealand up to $60. So you would essentially be paying $80 a kilo, probably nearly $100 for tasty cheddar and pretty much $100 for butter.

“It’s certainly quite possible given that this country and its exporters believe that they should be allowed to export to global markets for the highest price can achieve and to hell with the consequences for the local population, I’m a little bit concerned about a situation like that could arise very, very quickly.”

– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand